money mkts , stock exchange

7/29/2019 Money Mkts , Stock Exchange

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S.Y.B.COM

•

• Money is usually defined as anything which isgenerally acceptable as payment for goods andservices and for discharge of debts.

• Capital is that part of wealth which is used process

of business & economy.

• A market is a body of persons in such commercialrelations that each can easily acquaint himself withthe rate at which certain kinds of exchange s of

goods & services are from time to time made by theothers.



Financial System

• Financial system includes all thoseactivities dealing in finance into a

system• Promotes the well being and standard

of living of the people of a country

• Mobilize the saving• Promotes investment



Financial Market

Defined as the market in which financialassets are created or transferred.

These assets represent a claim to the

payment of a sum of money sometime in the

future and/or periodic payment in the form of

interest or dividend.



Financial System of any countryconsists of financial markets,

financial intermediation andfinancial instruments or financialproducts

Suppliers of funds

(Mainly households)Flow of financial services

Incomes , and financial

claims

Seekers of funds

(Mainly business firms

and government)

Flow of funds (savings)



Indian Financial System

Non- Organized

Organized Money lenders

Local bankers

Traders

Landlords

Pawn brokers

Chit Funds

Regulators

Financial Institutions

Financial Markets

Financial services



Barter

Money Lender

Nidhi's/Chit Funds

Indigenous Banking

Cooperative Movement

Societies Banks

Joint-Stock Banks

Evolution of Financial System



Consolidation

Commercial Banks

Nationalization

Investment Banks

Development Financial Institutions

Investment/Insurance Companies

Stock Exchanges

Market Operations

Specialized Financial Institutions

Merchant Banking

Universal Banking



Financial System

Savers Lenders Households Foreign

Sectors

Investors

Borrowers

Corporate Sector

Govt.Sector

Un-organized

Sector

Economy

Interrelation--Financial system & Economy



Organized Indian Financial System

Money MarketInstrument

Capital MarketInstrument

Forex

Market

Capital

Market

Money

Market

Credit

Market

Primary Market

FinancialInstruments

FinancialMarkets

FinancialIntermediaries

Secondary Market

Regulators



Classification

Money market(Short term instrument)

Capital markets

(Long term instrument)

The most important distinction between the two:

The difference in the period of maturity.



Main FunctionTo channelize savings into short term productive

investments like working capital .

Instruments in Money MarketCall money market

Treasury bills market

Markets for commercial paperCertificate of deposits

Bills of Exchange

Money market mutual funds

Promissory Note



Purpose of the moneymarket

• Banks borrow in the money market to:• Fill the gaps or temporary mismatch of

funds

• To meet the CRR and SLR mandatoryrequirements as stipulated by the centralbank

• To meet sudden demand for funds arisingout of large outflows (like advance tax

payments)

• Call money market serves the role of equilibrating the short-term liquidity position

of the banks



Bill Market

• Treasury Bill market- Also called the T-Bill market

• These bills are short-term liabilities (91-day, 182-day,364-day) of the Government of India

• A promise to pay the stated amount after expiry of thestated period from the date of issue

• They are issued at discount to the face value and atthe end of maturity the face value is paid

• The rate of discount and the corresponding issue

price are determined at each auction• RBI auctions 91-day T-Bills on a weekly basis, 182-

day T-Bills and 364-day T-Bills on a fortnightly basison behalf of the central government



Unsecured Promissory note.

Issued by well known companies with strong and high

credit rating.

Sold directly by the issuers to investors or through agents

like merchant banks and security houses.

Flexible Maturity

Low interest rates with compared to banks.

Im arts a de ree of financial stabilit to the s stem.



Defined as short term deposit by way of usance promissory

notes.

Greater flexibility to investors in the deployment of surplus

funds.

Permitted by the RBI to banks

Maturity of not less than 3 months and upto 1 year.

Transferable in nature

Free negotiability and limited flexibility



Referred as note payable in accounting

It is a contract detailing the terms of a promise by oneparty (the maker ) to pay a sum of money to the other (the payee).

The obligation may arise from the repayment of a loan or from another form of debt.

For example, in the sale of a business, the purchaseprice might be a combination of an immediate cashpayment and one or more promissory notes for thebalance.

http://en.wikipedia.org/wiki/Contract

http://en.wikipedia.org/wiki/Money

http://en.wikipedia.org/wiki/Loan

http://en.wikipedia.org/wiki/Debt

http://en.wikipedia.org/wiki/Debt

http://en.wikipedia.org/wiki/Loan

http://en.wikipedia.org/wiki/Money

http://en.wikipedia.org/wiki/Contract



Invest primarily in money market instruments of very high quality.

RBI and public financial institution can set iteither directly or through its existing subsidiaries.

MMMFOpen Ended

Close Ended



Indian Capital Market

Market Instruments Intermediaries

Primary Secondary

Equity DebtHybrid

Regulator

•Brokers•Investment Bankers•Stock Exchanges•Underwriters

SEBI

Players

Corporate IntermediariesCRABanks/FI FDI /FIIIndividual



Provided resources needed by medium andlarge scale industries.

Purpose for these resourcesExpansion

Capacity Expansion

Investments

Mergers and Acquisitions

Deals in long term instruments and sources offunds



Main Activity

Functioning as an institutionalmechanism to channelize funds from

those who save to those who needed for

productive purpose.

Provides opportunities to various class of

individuals and entities.



Capital Market Instruments

ADR / GDR

Equity Debt

Equity

SharesPreference

SharesDebentures Zero coupon

bonds

Deep

Discount

Bonds

Hybrid



Primary Markets Secondary MarketsWhen companies need financial resourcesfor its expansion, they borrow money frominvestors through issue of securities.

The place where such securities are tradedby these investors is known as the secondarymarket.

Securities issued

a)Preference Shares

b)Equity Shares

c)Debentures

Securities like Preference Shares andDebentures cannot be traded in thesecondary market.

Equity shares is issued by the under writersand merchant bankers on behalf of thecompany.

Equity shares are tradable through a privatebroker or a brokerage house.

People who apply for these securities are:

a)High networth individual

b)Retail investors

c)Employees

d)Financial Institutions

e)Mutual Fund Houses

f)Banks

Securities that are traded are traded by theretail investors.

One time activity by the company. Helps in mobilising the funds for the

investors in the short run.



Management of issues inprimary market

• Public issue

• Right issue

• Issue of bonus shares

• Private placements



Public issue

• Must pass a resolution in themeeting of the BOD

• Merchant banker at least 21days prior to the filing of prospectus with the registrar of the co.

• 1) pre issue obligation

• 2) post issue obligation



Issue of right shares

• When an existing co makesfurther issue of share, it is

compulsory for it to offer themto existing sh.holders inproportion to their present

holding.



Procedure for issuing

right shares• Decision taken by BOD• The terms of issue also specified• Necessary information is field with registrar within

30 days of the passing of the resolution

• Secretary prepares a list of members who areentitled to the shares and no. of shares to beoffered

• Secretary will prepare a list of members who haveconsented to subscribe for the shares offered tothem

• All shares disposed off ,the sec. will prepare sharecertificate

• Letter of allotment is filed in the prospectus• Necessary alteration are make in MOU



Issue of bonus shares

• It is prudent policy on the partof the co. not to distribute its

entire profit as dividend tosh.hol. but to transfer a portionof such profit to reserves to

meet unknown contingenciesand to strengthen the financialposition of the co.



Sources of bonus share

• Credit balance of p&l a/c

• General reserve

• Balance of debenture redemptionfund or sinking fund

• Capital redemption reserve a/c

• Share premium a/c• Profit on acquisition of buss.

• Profit on sale of fixed assets



Procedure for issuing

bonus shares• A decision taken by the BOD

• Secretory prepare a list of shareholders

• Letter of allotment are dispatched to

sh.hol.similar like issue of further share,except application are not invited

• Sh.hol. Are advised to get them inexchange of letters of allotment.

• A retuen of allotment is field with redistrar •



Private placements

• Funds are raised in the primary market byselling the securities to the investorseither singly or institutionally.

• Simplicity• Less issue expense• Flexibility• Prompt collection of funds• Response is private matter

• SecrecyInstitutional investors like mutual funds,LIC,GIC, DEVELOPMENT BANKS etc.



Stock exchange



Definition

• Stock exchange is an association or bodyof individuals, whether incorporate or notestablished for the purpose of assisting,

regulating, and controlling buss. In buying,selling, and dealing in securities.

• Securities contract act ,1956

• A stock exchange is an associaton of persons engaged in buying & selling of

stocks, bonds and shares for the public oncomission and are guided by certain rules& usages. Shri k.l. garg



Characteristic of Stock

Exchange• Voluntary association

• Provides facilities for dealing

• Strict standard of membership• Management by governing

board

• Listing of shares• Dealings through authorized

broker



Function of stock

exchange• Direct flow of savings

• Provides continuous market

• Easy credit facilities• Facilities sale of new securities

• Leads safety of dealings

• Proper evaluation of securities• Facilities speculation

• Storehouse of buss. Information

BENEFITS OF STOCK EXCHANGES



TO INVESTORS TO COMPANIES TO COMMUNITY

Imparts liquidity to

securities

Good response to

new issues

Guidance to

investors

Knowledge of market prices

Enhances prestigeof the co

Investment of community’s

savings in profitablechannels

Getting loans onsecurity of listed co.

Higher prices of listed security

Helps capital

formation

Quotations haveeducative value

No threat to control Encouraged to wellmanaged co.

Safety of dealings Less fluctuation inprices

Useful to govt. incollecting hugefinances

Investments of sound co. Wide market



Members of stock exchange jobber & his characteristics

• Dealer, specialists, stability inthe market, dealing with

brokers, jobbers profit• Equalizing quantity,

speculation, two way quotes,

matching demand & supply, cosponsorship



Brokers & their characteristics

• Agent

• Generalist

• Conduit between jobbers &public

• Income in the form of

commission



Listing of shares

• IPO• Size of public offer: not less than 25% of

issued capital & post issue paid up capitalis not less than Rs. 10 cr.

• Filing application : MA, AA, prospectus ,directors report , specimen copies of sharecertificates, & debenture certificates

• Wide distribution of shares: 5 for each Rs.1 lakh cap

• Dividend & bonus in the past 10 years• Brief history of the co.• Management pattern



• Payment of listing fees• Signing listing agreement

• Screening the application• Listing the shares

• Types of dealings

• Dealings in cash market• Dealings in future & option market• Arbitrage• Margin trading• Short sale



Methods of trading &settlement transaction

• Selecting a broker

• Refrence for customer

• Placing an order

• Execution of order • Informing the customer

• Settlement

• Taking delivery• Reversing the transaction

• By carry over



Each futures exchange has itsown clearing house. All

members of an exchange arerequired to clear their tradesthrough the clearing house at

the end of each trading session and to deposit with the clearinghouse a sum of money (based

on clearinghouse marginrequirements) sufficient tocover the member's debitbalance.

• For example, if a member broker reports

http://www.investopedia.com/terms/t/tradingsession.asp

http://www.investopedia.com/terms/d/debitbalance.asp




http://www.investopedia.com/terms/t/tradingsession.asp



p , pto the clearing house at the end of the daytotal purchase of 100,000 bushels of Maywheat and total sales of 50,000 bushels of May wheat, he would be net long 50,000bushels of May wheat.

• Assuming that this is the broker's onlyposition in futures and that the clearinghouse margin is six cents per bushel, this

would mean the broker would be requiredto have $3,000 on deposit with the clearinghouse.

• Because all members are required to

clear their trades through the clearinghouse and must maintain sufficient fundsto cover their debit balances, the clearinghouse is responsible to all members for thefulfillment of the contracts.

http://www.investopedia.com/terms/b/broker.asp





• is the period for which equities are traded inExchange.

• For Indian stock exchange NSE, thecycle starts on Wednesday and endson the following Tuesday, and for BSE the cycle starts on Monday and

ends on Friday.• At the end of this settlement cycle

period, the obligations of eachbroker are calculated and thebrokers then settle their respectiveobligations according to theguidelines, laws and regulationsinstitutionalized by the Clearingagency



• is a process where by a stockbroker and Custodian (in case of Institutional deals) brings in moneyand/or securities to the ClearingHouse. This forms the first phase of the settlement activity

• is a process where Clearing

House pays money or deliverssecurities to the brokers and

Custodians. This is the second phaseof the settlement activity



• All the above information ismostly in relation to the Indian

Stock market. Sometimes indifferent countries processesmay have some deviation fromit, but the basic fundamentals

behind the whole processremains same. In India, the Pay-in of securities and fundshappens on T+ 2 by 11 AM, and

Pay-out of securities and fundshappen on T+2 by 3 PM.

•



Suppose if you have Rs 25000 in your tradingaccount and if your broker provides 4 times marginthen you can do day trading till Rs one lakh.

Note - Margin trading also depends on sharecategory on which trading is done.For example - “A” category shares get full marginwhile “B” category shares get less margin and thiswill go on decreasing as you move down.

Major advantage of margin amount is if you haveless money then also you can buy more shares.Some experienced traders make use of marginamount to do multiple trades taking very smallprofits.

Ti t i ti If i t th h t



Time restrictions - If you use margin amount then you have to squareoff your trades before 3:30 pm whether your trade is in profit or lossit doesn’t matter.

We have also the information that even some trading terminalssquare off your trades automatically at 3:00 pm if you use the marginamount.

So if you use the margin amount then you have the time restrictionirrespective of whether your trade is in profit or loss you have to

square off your trade because the margin amount is not your moneyits brokers money which is given to you only for a single day for trading.

If you forget to square off your trade then you have to pay heavyplenty or some brokers charge interest rates on the margin amount.

So the bottom line is if you use the margin amount for day tradingthen you have to square off your trades irrespective whether you aremaking profit or loss.

money mkts , stock exchange

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